The myth of Gordon's economic competence

Monday 12 May 2008 11:55 BST

Electoral liability: Gordon Brown built his reputation on the back of being a safe pair of hands. Discard that and there is little left

Within less than a year, Gordon Brown's Labour Government has alienated everybody - all the entrepreneurs with its reform of capital gains tax, the international business community with its changes to non-dom legislation, big business with its tax policy towards multinationals and its core supporters with its abolition of the 10p tax band. No one should think that is easy. It takes real talent to upset all ends of the political spectrum at the same time and including those - the non doms - who rarely even vote. Real talent, or no feel for why you are in power in the first place.

The voters are in revolt, the local elections fiasco has been followed by a torrid weekend where an Observer poll showed three voters in four thinking Brown was doing a bad job and, to add personal insult to already serious political injury, he suffered ordeal by memoir. Both Cherie Blair and John Prescott separately published extracts from forthcoming books which painfully detailed his personal failings and foibles, his tempers and tantrums. It is hard to see how it can possibly get worse or how he can ever recover.

But the shambles is, in fact, a symptom. The real problem is that the wheels are coming off the wagon. Having boasted - rashly as it turns out - that he had abolished boom and bust in the economy and made prudence and stability his watchwords, the re-emergence of inflation, devaluation and falling house prices leaves the Prime Minister no place to hide. Economic competence has always been Gordon Brown's proudest boast. Take that away and what is there left?

Part of this voter unease, perhaps subconsciously, is rooted in history. The fear that the party may indeed be genuinely and irredeemably economically incompetent goes back to Labour's very first taste of power with Ramsay MacDonald's National Government of the 1930s through its second manifestation in the Attlee government's postwar devaluation, the third, which was Harold Wilson's pound in your pocket devaluation in 1967 and the fourth, the financial collapse which led to the International Monetary fund rescue in 1976.

It was Brown's singular achievement in his time as Chancellor in Labour's fifth period in power to persuade people that it had learned its lessons and that the stigma of economic incompetence should henceforth be bestowed on the Tories following John Major's humiliating exit from Europe's Exchange Rate Mechanism on Black Wednesday in 1992. But now, as the economy begins to unravel, there is an uncomfortable rising fear that Brown spoke, and we believed, too soon.

In part it is his own fault because, in truth, he was never as good as he claimed to be. Apart from giving independence to the Bank of England, he ought to be remembered for how his financial sleight of hand has resulted in the destruction over 10 years of the best occupational pension scheme in Europe. But more than that one often felt listening to him as Chancellor that he lived in a parallel universe and Britain had two economies. There was the one he talked about, with the lowest unemployment for 30 years, the lowest interest rates for 50 years, the fastest-ever rate of job creation, the longest period ever of non-inflationary economic growth and rising living standards, the one where we were the envy of the world.

And there was the other economy he never mentioned but the rest of us lived in, with the biggest-ever balance of payments deficit, the crumbling infrastructure of roads, railways and airports, stagnant productivity growth, an under-class of almost illiterate school leavers, millions of older people doomed to permanent joblessness who were conveniently hidden in the soaring totals of long-term sick and the most miserly state pensions of any developed nation.

Part of Brown's problem now is that the two realities can no longer be kept separate. Another, of course, is that in his desire to court popularity he spent too freely in the good times, and put nothing aside as a buffer against a downturn so there is no way other than by bluster to hide the reality.

These days, in the absence of external threats, or deeply divergent political platforms, it is purses and wallets which determine how many people vote. If they feel prosperous, confident and comfortable they want to stay that way so they vote for the status quo. If they think their jobs may not last and even the prices when they go abroad on holiday make them feel poor, they begin to think about change. But when their houses start to fall in value, and when inflation means they can barely make ends meet after they have filled up the car with petrol, paid the electricity bill and forked out a fortune in council tax, they look for someone to blame. That is when they turn on the Government and the worse it gets, the greater the venom.

However, these things are never that certain. Looking forward right now it seems obvious that house prices will fall, that unemployment will rise and that money will be tight and sterling will collapse further. But there are two uncertainties. First you just don't know how bad it will become - whether it will be a shallow dip or something very much worse. Second you don't know how long it will last - whether as Brown and the Treasury say this is a 12-month problem, or, on the contrary, whether as some economists and prominent businessmen such as advertising tycoon Sir Martin Sorrell of WPP predict, the real pain will only begin to be felt next year and will run through into 2010.

Given that the election need not be called till 2010, this range of outcomes makes a huge difference. If it is really bad all the way through then the Government must surely be doomed. But if it is over quickly Brown might, even now, turn this turmoil to his advantage. Voters will have had a nasty fright, he will say, but they were right after all to trust him with the economy because he saved them from something even worse.

This must be the Prime Minister's best hope of keeping David Cameron at bay, yet it is surely a false one because it is like the Emperor's New Clothes. Once the public realises they were silly to believe because there was nothing there, they are not going to believe again, however much he tries. The spell of economic competence has been broken and probably, with it, Labour's grip on power.